Human Resource Management in the Airline Industry - The Example of Star Alliance

Table Of Contents

Table Contents

Illustration Contents

Abbreviations

1. Thesis Outline
1.1 Objectives
1.2 Topic Relevance

2. Definitions and Background
2.1 Airline Industry and Alliances
2.1.1 Airline Industry
2.1.2 Airline Alliances
2.1.3 Star Alliance
2.1.4 Standardisation at Star Alliance
2.2 Human Resource Management
2.2.1 Human Resource Management
2.2.2 Standardisation of HRM
2.2.3 Individualisation of HRM
2.3 Theoretical Background

3. Analysis: Standardisation vs. Individualisation
3.1 Objective One: Benefits and Risks
3.1.1 The Six L’s
3.1.2 Summary and Résumé
3.2 Objective Two: Analysis of Pressures
3.2.1 Pressures towards Standardisation
3.2.2 Pressures towards Individualisation
3.2.3 Summary and Résumé
3.3 Objective Three: Standardised HRM at Star Alliance?
3.3.1 Analysis Approach
3.3.2 Aspects of HRM in Star Alliance
3.3.3 Summary, Tendency and Résumé
3.4 Objective Four: Reasons
3.4.1 Five Reasons for Star Alliance’s HRM Policy
3.4.2 Summary and Résumé

4. Concluding Section
4.1 Summarising Comments and Résumé
4.2 Suggestions for Future Studies

Bibliography

Further Literature

Appendix A: Interview Transcription
A.1 Brandwein, R. (2005)
A.2 Frühe, C. (2004)
A.3 Holen, A. (2004)

Appendix B: E-mail Correspondence
B.1 Albarracin, D. (2004)
B.2 Appelbaum, S. H. (2005)
B.3 Blyton, P. (2005)
B.4 de Wit, J. (2005a)
B.5 de Wit, J. (2005b)
B.6 Dribbusch, H. (2005)
B.7 Eaton, J. (2004)
B.8 Frühe, C. (2004)
B.10 Funk, L. (2004b)
B.11 Gillen, D. W. (2004)
B.12 Gillen, D. W. (2005)
B.13 Gudmundsson, S. V. (2005)
B.14 Hall, M. (2005)
B.15 Hooper, P. (2005)
B.16 Kleymann, B. (2005)
B. 17 Mason, K. (2005)
B. 18 Massa-Wirth, H. (2004)

Table Contents

Table 1: The Advantages and Disadvantages of Standardisation

Table 2: Pressures for Standardisation and for Individualisation

Illustration Contents

Illustration 1: The Standardisation vs. Individualisation Grid

Abbreviations

illustration not visible in this excerpt

1. Thesis Outline

1.1 Objectives

The aim of this thesis is to explore Human Resource Management (HRM) in the passenger business^[1] of the airline industry, and in particular, the potential for standardisation of HRM in airline alliances, by using the example of Star Alliance^[2]. A first analysis immediately highlights that the area of HRM continues to be individually managed by Star Alliance’s member airlines. EATON (2004, p. L)^[3] makes the assumption, “I doubt very much if Star Alliance is sufficiently cohesive to lead to significant changes, let alone convergence, in HRM practices”. This belief is to be explored. This thesis will have four main objectives. The first objective is to identify potential benefits and costs to the alliance that could be associated with a standardised HRM-policy^[4]. These advantages and disadvantages will be grouped according to the six L’s (learning, leaning, leveraging, linking, leaping, and locking out), as defined by PREECE (1995) (see 3.1). Secondly, the author would like to use a theoretical model, the integration-responsiveness grid of PRAHALAD/DOZ (1986; 1987), to capture the pressures, which make the strategies of standardisation or individualisation critical. This model will be applied to the airline industry, and to an organisational (Star Alliance), and functional (HRM) context (see 3.2). The third objective is to analyse the extent to which the members of Star Alliance apply standardised, as apposed to individualised HRM instruments in reality, and to consider whether Star Alliance airlines are increasingly or decreasingly standardising the HRM-field (see 3.3). Finally, the author would like to discus the reasons to explain the findings of section 3.3 (see 3.4).

This thesis will have the following structure: section 1 will provide an introduction, including the objectives of the thesis and their relevance; section 2 will function as a theoretical foundation, defining the core terms of airline alliance, HRM, and standardisation and individualisation of HRM, as well as introducing the theoretical model by PRAHALAD/DOZ (1986; 1987). The author feels that it is important to provide a detailed description of the airline industry and alliances, as they are complex and are affected by many factors. The subsequent and main section will be divided into four parts, each part being dedicated to one of the four objectives, presented in the same order as above; finally, section 4 will conclude this thesis, summarising, and giving a critical analysis of the findings, and making suggestions for future studies, which could be undertaken in this, or in related fields. The author considers this structure to be logical and suitable.

Several problems may arise in the attempt to achieve these objectives: the author identifies a lack of literature specific to this topic (see 1.2), and as the airline industry is a dynamic industry, much up-to-date information is required. Hence, the author believes that documentation on aviation or HRM related issues (i.e. journals, magazines, internet), as well as primary sources, such interviews or correspondence (i.e. electronic mails) with industry experts^[5] will be of much use. Transcripts of interviews and all other correspondence can be found in Appendix A and Appendix B respectively; it may prove difficult to receive information about HRM from the airlines, as much of which is kept confidential, for example, statistics about employee demographics and salaries^[6] ; and finally, as Star Alliance has fifteen members, a detailed analysis of all airlines would be beyond the reach of this thesis. Therefore, the author will attempt to specify the airlines in focus (see 2.1.3).

1.2 Topic Relevance

Precisely this topic, about standardisation of HRM in airline alliances, has been considered to be, “very timely” (Gillen 2004, p. LVI), as well as “interesting” (Eaton 2004, p. L; Blyton 2005, p. XLV; Mason 2005, p. LXV) and “relevant” (cp. Gudmundsson 2005, p. LIX). This description can be argued to be appropriate, due to the following reasons.

Firstly, the topic can be described as timely as in the last decades, HRM and the global airline industry have become increasingly recognised as important, which has prompted authors to extend their analysis of the two. With respect to HRM: increasing work-force diversity (cp. de Cenzo/Robbins 1994, p. 7); the increasing size and complexity of companies; the absolute and relative rise in the labour costs of firms; the intensification and globalisation of competition; the individualisation of HRM-issues; structural developments in the labour market; and innovations in technology, have been the factors that have lead to this increased acknowledgement of HRM-related issues (cp. Holtbrügge 2004, p. 4 et seq.). With respect to the airline industry: it is one of the fastest growing industries in the world and has gained importance through the current era of globalisation (cp. Harvey/Turnbull 2002, p. 1). Today operations are being dealt with on a worldwide basis (cp. de Cenzo/Robbins 1994, p. 7), and airline travel plays an increasing role in bridging geographical distance. According to the International Air Transport Association (IATA), the number of passengers travelling on scheduled flights has increased on average by over six percent annually for the last three decades (IATA, quoted by Stolzke 2004). In comparison with 2003, international airline passenger traffic increased by over fifteen percent in 2004, and in certain regions, such as Asia-Pacific, which includes China, passenger numbers increased by over twenty percent (cp. Reuters 31.01.05a)^[7], showing that the industry is becoming ever more significant.

A second reason for the timeliness of this thesis, is that HRM within airline alliances is one area of aviation economics, which has not been explored or documented in detail (Mason 2005, p. LXV; Gudmundsson 2005, p. LIX), hence there is much new ground to be broken (cp. Gillen 2004, p. LVI). Studies that have been written about airline alliances have generally overseen HRM-issues and have, amongst other things, focussed on the following aspects: the forms and extent of co-operation between partners (e.g. Mountford/Tacoun 2004); the effects of alliances on competition (e.g. Wang/Evans/Turner 2004);consumer and policy issues (e.g. Gudmundsson 1999); demand-side problems resulting from alliance structure (e.g. Netzer 1999); successful project management (e.g. Birkmann 2001); and airline productivity and profitability relating to alliances (e.g. Oum et al. 2000). These authors have tended to analyse the airline industry on a macroeconomic level and have not focused on a particular airline alliance, as this thesis intends to do. Seldom have authors analysed HRM in strategic alliances (e.g. Lajara/Lillo/Sempere 2002; 2003). Even fewer authors have combined HRM and the airline industry in their studies (e.g. Appelbaum/Fewster 2002; 2003a; 2003b; 2004a; 2004b; Eaton 2001). A series of books and journals on aviation and aerospace published by ASHGATE^[8] covers several HRM-related topics, such as: human factors^[9] (e.g. Fuller/Johnston/McDonald 1995; Green et al. 1996); safety and risk (e.g. Alston 2004; Dietrich/Jochum 2004); and training and selection in the aviation industry (e.g. Henley 2004; Telfer/Moore 1997). However, these books neither focus their analysis on alliances, nor provide an international comparison of HRM-practices or an analysis of the extent of standardisation of HRM within airlines.

Critics may however argue that the example of Star Alliance is not a timely one, due to the following points: current occurrences in HRM-related issues, especially in the bankrupt American partners, United and US Airways, are not common to the alliance, but are desperate measures, which the airlines are taking in their struggle to survive (see 3.2.1); and Star Alliance is currently undergoing changes, brought about by the addition of new members (see 2.1.3). Therefore, an analysis at a point in time after the integration of the new partners may arguably prove “more timely”.

With regards to this thesis being interesting and relevant, arguments can be presented from both a theoretical and a practical perspective. The theoretical relevance of this thesis is its approach to the question of standardisation vs. individualisation in an international context. As does any service industry, the airline industry faces the challenge of finding the right strategic balance between providing an efficient service on the one hand, and satisfying individual customer needs on the other (cp. van Well 2001, p. 2). This is the balance between global standardisation and local individualisation (cp. Engle et al. 2001, p. 348). This topic, synonym to globalisation vs. localisation, integration vs. differentiation, or levelling vs. responsiveness, is one, which has received significant academic attention since the early 1980s (cp. de Wit/Meyer 2000, p. 730). Studies have focused on the integrated, as apposed to diversified Multinational Corporation (e.g. Bartlett/Ghoshal 1995; Ghoshal 1987), on global, as apposed to local markets (e.g. Levitt 1983; Douglas/Wind 1987), as well as industries (e.g. Prahalad/Doz 1986; 1987; Porter 1990), and products and activities (e.g. Bartlett/Ghoshal 1987; 1989). Standardisation vs. individualisation of HRM has however, not been dealt with in classical alliance literature (cp. Kleymann 2005, p. LXIV). Nevertheless, the author feels that it is important to address this topic, due to the affects that it has on strategy. VANDER KRAATS (2000, p. 60, 62) states that the degree of advantages (and also risks) brought about by alliances depends on the geographical scope of the alliance and the degree of marketing and operational integration (including HRM) of the partners. Star Alliance covers a wide geographical scope^[10] and has integrated marketing, with the common alliance web site^[11], and joint customer-relationship management through the frequent-flyer loyalty programme. In terms of operational integration, there are many activities in place (see 2.1.4). It is only the area of HRM, where the level of integration appears to not yet be clearly defined.

In terms of practical relevance, HRM in the airline industry plays an important role, as it affects many people (cp. Ohanessian/Kleiner 1999, p. 51). Airlines are labour intensive (cp. Gudmundsson 2002, p. 8), and the industry creates millions of jobs, directly, and indirectly to the tourism industry that it supports (cp. Harvey/Turnbull 2002, p. 1). A standardised HRM policy can be assumed to lead to considerable restructuring and rationalisation of resources, i.e. job losses (cp Brandwein, p. XXIV). For Star Alliance, standardising HRM would create many opportunities and benefits, but simultaneously, many threats and risks (see 3.1). These effects would in turn have an impact on the parameters of profitability in airlines, namely traffic levels, unit costs, capacity and yield (cp. Turnbull/Blyton/Harvey 2004, p. 290).In addition to this, according to BLYTON ET AL. (2001, p. 459), there is now an increased awareness of, and the incentive for labour in the airline industry to be combined internationally, due to the structure of the airline industry, the homogeneity of work and conditions of employment, and the increasing tendency of airlines to benchmark and transfer conditions from one carrier to the next. According to the ITF (1996, p. 16), the internal sourcing of labour is a strategy used by airlines to reduce costs and sometimes to undermine union representation, which is generally high in the industry (cp. Turnbull/Blyton/Harvey 2004, p. 290).

Although the author is convinced that the thesis topic is of interest to many different people, “interest” is a personal and subjective issue. The question should therefore be, of interest to whom? Critics may also argue that the issue of standardising HRM in alliances is of no relevance, as despite intense co-operation and independence in many areas, alliance partners continue to be legally autonomous, heterogeneous entities (cp. Kleymann 2003a, p. 2, 19; 2003b, p. 15; 2004 p. 1). To standardise such a company-specific aspect^[12] as HRM would imply a merger of the airlines, which is not the intent of the alliance (cp. Frühe 2004, XXXIII). The airline industry is also a very dynamic one, and exit from and entry in to an alliance occurs. In Star Alliance, the complexity is high, due to the many partners (see 2.1.3), whose entry and exit into the network can change the alliance payoff structure substantially for other members (cp. Gudmundsson 2005, p. LIX). This thesis provides a static analysis; hence observations that are made may become irrelevant due to changes in alliance membership. In addition, Star Alliance provides only an example of one airline alliance. It may operate very different to other alliances^[13] and therefore, the relevance of any conclusions drawn will be of specific relevance to this part of the industry and at this particular point in time.

2. Definitions and Background

2.1 Airline Industry and Alliances

2.1.1 Airline Industry

The airline industry is responsible for the transportation of people, goods and post around the globe (cp. Netzer 1999, p. 18). It is affected by many factors, including war, economic business cycle, and business competition (cp. Wang 2004, p. 455) as well as its traditionally high level of regulation (cp. Vaara/Kleymann/Seristoe 2004, p. 11). It has been characterised as being an extremely competitive, safety-sensitive, service industry^[14] (cp. Appelbaum/Fewster 2002, p. 66). These three characteristics of the industry have a large impact on HRM, as will be explained in subsequent paragraphs.

Firstly, the airline industry has been increasingly exposed to competition (cp. Gudmundsson 2002, p. 6; Ohanessian/Kleiner 1999, p. 51; Pamatian/Kleiner 1999, p. 37). The first of the two main factors, which have contributed towards intensified competition, is deregulation (cp. Eaton 2001, p. 11; Lorenzoni/Lewis 2004, p. 14; cp. Vaara/Kleymann/Seristoe 2004, p. 12). Deregulation meant that the airline industry first had to be made profitable (cp. Kessler/Bayliss 1998, p. 149). It was transformed from being a largely non-labour-sensitive industry, into being a highly labour-sensitive one, with important implications for labour-management relations, such as redundancies, and more part-time positions^[15] (cp. Gil 1990, p. 319, 324, 328). The second of the two factors is the increased price pressure from so-called, Low Cost Carriers (LCCs) (cp. Jegminat 2004b, p. 80; Reuters 15.12.04; Schaefer 2004, p. 81). LCCs increase competition as they offer cheap fares, which they can allow, due to their achievement of lower overheads than traditional airlines in many areas^[16]. GILLEN (2004, p. LVII) argues that in general, LCCs place relatively more importance on HRM as a core value within the airline than do traditional airlines^[17]. In HRM, LCCs maintain comparatively lower overheads by, amongst other things, increasing labour flexibility (cp. Gudmundsson 2004b, p. 459), having multiple-functional employees, and by providing a basic service level (cp. Blyton et al. 2003, p. 9). CHAN (2000, p. 525) recognises two strategies that global airlines can adopt: the commodity-based strategy, which involves the delivery of passengers to their desired destination on time and at the lowest possible price (LCC), and the service-based strategy, which involves the provision of a pleasant and comfortable flying experience (traditional airlines). From this point on, when referring to airlines, the latter is meant.

Secondly, the safety-sensitive characteristic of the industry is one, which is regulated by government (cp. Williams 2003, p. 515). Safety has been a growing concern for passengers (cp. Appelbaum/Fewster 2002, p. 66), especially since the terrorist attacks of September 11th 2001^[18] (cp. Eschbach 2004, p. 38; Gudmundsson 2004a, p. 440; Rhoades/Waguespack 2004, p. 307; Wang 2004, p. 455). Modern aeronautical technology is reliable, hence, as opposed to mechanical malfunction; the majority of aviation accidents have been caused by pilot or crew error, and by teamwork failures (cp. Eaton 2001, p. 116; Flin/O’Connor/Mearns 2002, p. 68 et seq.). Human error^[19] is claimed to be the cause of between sixty and eighty percent of all accidents (cp. Lima 2000, p. 85). Diversity in national, linguistic, and professional cultures may also impact adversely on communications and safety (cp. Appelbaum/Fewster 2004b, p. 2). Other errors can be caused by distraction during decent, or poor training practices (cp. Lima 2000, p. 86).Safety concerns mean that training is taken more seriously by airlines than by other firms^[20] (cp. Eaton 2001, p. 115; Williams 2003, p. 515). In airline alliances, passengers would presumably expect a similar level of expertise from all members. Without a standardised training programme, a common safety level may not be present^[21]. This is because the attitude towards safety management is dependent on the airline’s culture, ethics, values and vision (cp. Appelbaum/Fewster 2004b, p. 9), which are aspects that differ amongst Star airlines. Safety can also be endangered by cut backs in areas of human resources (cp. Harvey/Turnbull 2002, p. 31), such as insufficient staffing, lack of training of employees, and insufficient resource allocation, as well as by misunderstandings in communications and ineffective teamwork (cp. Appelbaum/Fewster 2004b, p. 9). Therefore the HRM-policies of airlines are particularly important.

Finally, in such a competitive market, an excellent customer service is arguably the key to survival for the majority of airlines (cp. Ohanessian/Kleiner 1999, p. 55; Wang/Evans/Turner 2004, p. 27). Airlines aim to provide a high service, not only due to the disproportionate profitability of the business-class passenger (cp. Eaton 2001, p. 92), but also in order to increase customer satisfaction^[22] and strengthen the airline brand (cp. Gudmundsson 2004b, p. 460), as well as to retain passengers, and avoid the high marketing costs of gaining new ones (cp. Lorenzoni/Lewis 2004, p. 11 et seq.). Effective customer service refers to meeting individual customer demands (cp. McArthur 2004, p. 55). Customer’s expectations of service have become ever more demanding over time (cp. Appelbaum/Fewster 2002, p. 66). These high demands of customers cannot be satisfied by airlines that only cooperate loosely with one another (cp. Welge/Holtbrügge 2003, p. 337). BLYTON ET AL. (2001, p. 450) argue that because the leading airlines of today offer a relatively similar service level^[23], the single service-factor, which remains for airlines to use as their competitive advantage, is the employees that deliver this service. This means that it is people, and not the procedures, products or machines that represent the core competence and the most important differentiators between the average and the excellent airlines (cp. Appelbaum/Fewster 2002, p. 66; 2003a, p. 59; 2003b, p. 56; Ohanessian/Kleiner 1999, p. 54 et seq.). This people-factor makes it difficult to sustain standards (cp. Eaton 2001, p. 14). This is especially true in the airline industry, as there is a high level of close and frequent interaction between the front-line staff^[24] and the customer, which requires professionalism in many instances (cp. Eaton 2001, p. 10; Lorenzoni/Lewis 2004, p. 14; Netzer 1999, p. 210). A further aspect of services is that they are intangible and perishable (cp. Lorenzoni/Lewis 2004, p. 14; Turnbull/Blyton/Harvey 2004, p. 290).As a result, airlines cannot build up inventory, and may incur a financial loss through unoccupied passenger-seats (cp. Harvey/Turnbull 2002, p. 7, 19; Turnbull/Blyton/Harvey 2004, p. 290). In economic downturn, this has the result that airlines immediately reduce capacity^[25], which again, invariably results in job losses (cp. Harvey/Turnbull 2002, p. 2, 9; Turnbull/Blyton/Harvey 2004, p. 291).

2.1.2 Airline Alliances

The airline industry has shifted from being one characterised by stability and external regulation by the state, to one characterised by rapid and more dynamic change, where very large companies and global alliances increasingly dominate operations (cp. Blyton 2003, p. 5). Today, it has become inevitable that virtually every major airline participates in an alliance of some form (cp. Vaara/Kleymann/Seristoe 2004, p. 6, 23, 25, 29; Kleymann 2003a, p. 9). Alliances are one of the most common business models of firms and of airlines (cp. Lajara/Lillo/Sempere 2002, p. 35; 2003, p. 61, 76; Vander Kraats 2000, p. 56). This inter-organisational relationship involves substantial investments in the development of the collaboration and common orientation (cp. Wang/Evans/Turner 2004, p. 24). Only by cooperating and forming alliances can airlines meet the mobility requirements of the world economy (cp. Lufthansa 2002a, p. 5), as alliances contain members from different countries (cp. Vaara/Kleymann/Seristoe 2004, p. 7).

Airline alliances are not mergers (cp. Gudmundsson 2005, LIX; Vander Kraats 2000, p. 56), as airlines remain legally and economically independent entities and keep their identities (cp. Frühe 2004, p. XXXIII; Netzer 1999, p. 17; Vander Kraats 2000, p. 56). Alliances can however, to a certain extent, be described as “quasi-mergers”, as although their members operate predominately as legally separate entities, they develop code-sharing^[26] arrangements, which involves a certain level of integration (cp. Eaton 2001, p. 34). In strategic^[27] alliances, airlines cooperate horizontally with other airlines, which are on the same level of the value chain and are potential or actual competitors (cp. Hill 2002, p. 444)^[28]. KLEYMANN (2003a, p. 2; 2003b, p. 2; 2004a; 2004b, p. 1) argues that alliances can, to some extent, be seen as organisations in their own right, but that these organisations are based on interdependent needs rather than common purpose. Airlines remain autonomous, but are interdependent, meaning that centripetal forces bring the members to integrate, whilst simultaneous centrifugal forces, push the airlines away from one another (cp. Kleymann 2003b, p. 15; 2004b, p. 1).

Through collaboration, partners join forces to aim to compete more successfully in the industry (cp. Hungenberg 2001, p. 416; Wang/Evans/Turner 2004, p. 26). Alliances may consist of a joint frequent-flyer programme^[29] and check-in facilities, code-sharing agreements, marketing arrangements, joint procurement policies, system commonality and according to VANDER KRAATS (2000, p. 56), also the interchanges of flight-crew personnel and aircraft. In contrast to regional alliances^[30], which are specific to a particular region, strategic alliances involve code-sharing and other agreements (see 2.1.3) on a vast number of routes of both airlines (cp. Vander Kraats 2000, p. 56). Strategic alliances are said to generally have a significant and positive impact on profitability (cp. Oum et al. 2000, p. 852), and on market share (Wang/Evans/Turner 2004, p. 42), especially when they involve high-level co-operation. Strategic alliances^[31] facilitate an airline’s rapid external extension of its network (cp. Gudmundsson 1999, p. 139; 2004b, p. 460; Hill 2002, p. 444), without risking financial or legal commitment to their partners. Alliance members share the costs associated with the development of new products or processes (cp. Hill 2002, p. 445), and they join certain resources^[32] and operations (cp. Oum et al. 2000, p. 844). Despite cultural diversity of partners, they allow members to harmonise and integrate their products and processes (cp. Lufthansa 2002b, p. 2), and passengers enjoy smoother transitions for connecting flights (cp. Vander Kraats 2000, p. 59). Nevertheless, the characteristics of the product, market conditions and the structure of operational costs in the airline industry create challenges for partners, and make strategic airline alliances difficult to sustain (cp. Turnbull/Blyton/Harvey 2004, p. 288).

2.1.3 Star Alliance

As stated in section 1.1, Star Alliance will be the focus of the thesis. Star Alliance is the trademark given to the cooperative network, which is based on a large number of voluntary, bilateral contracts between independent airlines (cp. Welge/Holtbrügge 2003, p. 338). According to WANG (2004, p. 457), Star Alliance is not only the largest, but also the most integrated airline network. The members cooperate predominately on a non-equity basis^[33] and the contracts cover items of horizontal co-operation between airlines in many business fields. Star Alliance was formed in May 1997 by the airlines, Air Canada, Deutsche Lufthansa AG (Lufthansa), Scandinavian Airlines System (SAS)^[34], Thai Airways International plc. (Thai Airways), and United Air Lines Inc. (United) (cp. Air Canada 2004, p. 1; Star Alliance 2003a). In January 2005, Star Alliance had fifteen members, which is the largest number of partners in any airline alliance. Alongside the founding five airlines, other members are Air New Zealand, All Nippon Airways (ANA), Asiana Airlines, Austrian Airlines (AUA)^[35], British Midland (bmi), LOT Polish Airlines, Singapore Airlines (SIA), Spanair, US Airways and Viacao Aerea Rio-Grandense Brazilian Airline (Varig) (cp. Star Alliance 2004c; Thiel 2004, p. 37). In November 2004, the member airlines had access to 772 airports in 133 countries of the world, carried 355,2 million passengers annually, and employed approximately 280,000 people (cp. Star Alliance 2004c). With the addition of South African Airways (SAA) and TAP Air Portugal in 2005, as well as the first regional members, the Finnish SAS subsidiary, Blue1, and two further new partners, Croatia Airlines and Adria Airways^[36] (cp. Reuters 18.11.04; Rogl 2004, p. 90; Star Alliance 2004a; 2004d; Thiel 2004, p. 38), Star Alliance is likely to remain the world’s largest airline alliance, with a global market share of around twenty-eight percent (cp. Pilling 2004, p. 8; Reuters 18.11.04).

Although Star Alliance claims that its members are equal and that their mission is the same, as GILLEN (2005, p. LVII) states, members play heterogeneous roles and consequently have differing relevance^[37] within the alliance. The relevance of the airline is, according to MATTSSON (1987 p. 237, quoted in Netzer 1999, p. 36), dependent on the firm’s function within the alliance, its importance relative to that of other firms, the depth of relationship that it has with other members, and the identity of the firm. In addition, KLEYMANN (2004b, p. 4) argues that a powerful position in an alliance is achieved by airlines who dominate attractive, wealthy, high yield markets, which have high entry barriers from the outside (due to cultural remoteness, geographical remoteness, regulatory restriction)^[38], i.e. those who posses competitive resource endowments (cp. Kleymann 2003b, p. 3). Within Star Alliance, the consideration of the bilateral contracts and form of co-operation that exists between the airlines is one method to judge the relative importance of the members, and the likelihood of a close co-operation (standardisation). Some airlines have not only code-sharing agreements, but also anti-trust immunity, e.g. United, Lufthansa and SAS (cp. Star Alliance 2003a), as well as Air Canada and United (cp. Air Canada 2004, p. 32); some have joint venture co-operation agreements, e.g. SAS and Lufthansa (cp. Welge/Holtbrügge 2003, p. 339), and the SAS Group^[39], Lufthansa and bmi (cp. SAS Group 2004, p. 16), which signifies the differing depths of co-operation. Looking at the shareholdings that airlines have of other airlines is also interesting, as this has an influence on voting rights and strategic direction. Within Star Alliance, the SAS Group owns ninety-five percent of Spanair and twenty percent of bmi (cp. SAS Group 2004, p. 3, 37, 38), and the Lufthansa Group^[40] owns a further thirty percent of bmi (cp. Lufthansa 2004, p. 183). In addition, SIA was the third largest shareholder of Air New Zealand in 2003 (cp. Air New Zealand 2004, p. 84). In 2003, the Swissair Group (SAirLines Europe B.V.) owned over a quarter of LOT Polish Airline (cp. LOT 2004, p. 49). This is particularly interesting, as Swissair has a coordinated route network and joint ground services, as well as a reciprocal frequent flyer programme with American Airlines, Finnair and Iberia, who are all members of oneworld, the competing alliance (cp. oneworld 2004; Swiss International Air Lines 2005).Other factors to consider include, the time of entry into the alliance; the size of the airline (in terms of revenues, fleet, employee numbers); the number of routes and location of the routes that the airline operates (which depends on its designated slots); as well as the corporate strategy. These factors are all relevant when considering the standardisation of HRM strategies in the alliance or between certain airlines in the alliance.

In the introduction to this thesis, the author stated that the study should concentrate on just a few member airlines of Star Alliance, for example, the five founding members^[41], or only the six European members^[42]. However, after considering the effects of this specification, the author has chosen not to specify the airlines in focus due to the belief that both the focus on the five founding members^[43], and on the six European members^[44] would insufficiently provide a true representation the whole of the alliance. Therefore, findings will either be illustrated in terms of Star Alliance as a whole or by using the most extreme examples.

2.1.4 Standardisation at Star Alliance

The question of standardisation is relevant, as Star Alliance fulfils the requisite conditions for global standardisation, as defined by DOUGLAS/WIND (1987, p. 747 et seqq.). These conditions include: the existence of a global market segment, potential synergies^[45] from standardisation, and the availability of communication and an appropriate infrastructure to deliver the product of the firm to customers worldwide. This has several implications. According to DOUGLAS/WIND (1987, p. 747 et seqq.), the existence of a global market segment means that the airlines need to market an at least semi-uniform global image to maintain a worldwide reputation for quality and service; potential synergies associated with standardisation include advantages gained from the positive global image or from the transfer of knowledge and ideas across international boarders, as well as the acquisition and exploitation of expertise; the infrastructure to deliver Star Alliance’s product to customers worldwide exists through its extensive flight and route network, which is communicated through the Alliance website, through the airline’s websites, as well as through the infrastructure of travel agents and the different global distribution systems^[46]. Therefore, in several non-HRM areas, Star Alliance has been able to standardise many functions, operations and processes. For example, standardised marketing efforts, shared check-in facilities and jointly developed technology, as well as alliance lounge facilities and frequent flyer programmes. In addition, the alliance extranet, StarNet, is designed to link the computer and reservation systems of the member airlines and increase information sharing amongst partners (cp. Welge/Holtbrügge 2003, p. 340). Member airlines also utilise common facilities and focus on capturing potential synergies in areas such as joint purchasing (cp. Air Canada 2004, p. 31), as well as joint handling, shared maintenance and combined or pooled external services (cp. Turnbull/Blyton/Harvey 2004, p. 295).

VANDER KRAATS (2000, p. 62) argues that economic advantages through the collaboration of airlines can only be maximised, if a single controlling entity, which unifies all aspects of the business under a central authority, is created. Although there is no real controlling entity of Star Alliance, Star Alliance Services GmbH^[47] functions as a, “project and brand management company” (cp. Star Alliance 2004b) to devoid the divergent interests of members. The company was established according to German law, in order to co-ordinate the development of Star-concepts, and to work towards an efficient rollout of joint products around the world (cp. Lufthansa 2002a, p. 5). It is organised into several strategic business units^[48], including Human Resources and Training, is financed through fees paid by the member airlines and employs approximately sixty people. However, the focus of Star Alliance Services GmbH is more on customer-related services and IT systems (cp. Frühe 2004, p. XXXVI)^[49], rather than on developing standardised HRM. The role of Star Alliance Services GmbH in HRM in the airlines will be explained in section 3.3.

2.2 Human Resource Management

2.2.1 Human Resource Management

Human Resource Management is the strategic approach to the management of people (Appelbaum/Fewster 2002, p. 67) and of employment within the internal environment of organisations, which should be integrated throughout management in general (cp. Eaton 2001, p. 27, 89). It a subsystem of a corporation, which is designed to help carry out the strategic goals of all departments of the company and to improve its competitive position (cp. Goldner 2003, p.77). HRM differs from all other functions within a firm, as unlike for example, IT or production, HRM deals predominantly with people and not with technology, products or things. Hence, work in the HR field demands a high level of special care, as working with people is complex (Wright/Brewster 2003, p. 1305). There are individual and collective participants of HRM. The individual participants are the employees and managers, and the collective participants are the employee representatives and the human resources department (cp. Holtbrügge 2004, p. 33). People are central to the business (cp. Eaton 2001, p. 89). These people have the need for personal relationships and contacts with colleagues (cp. Eschbach 2004, p. 39). The “human resource” has become highly regarded as arguably the most important resource that a firm has and can use, to create value and profit (cp. Bartlett/Ghoshal 2002, p. 34 et seq.; de Cenzo/Robbins 1994, p. 6 et seq.). This is because individuals have specialised knowledge, skills and expertise and are therefore recognised as the scarce strategic resource (cp. Bartlett/Ghoshal 2002, p. 37). The strategy that airlines implement to deal with their employees is not simple, as HRM is affected by both internal (corporate strategy, the level of internationalisation of the firm) and external (employment laws and regulations, labour contracts, the labour market) factors (cp. Holtbrügge 2004, p. 55). Union contracts and union priorities also play an important role (cp. Feldman 2001, p. 121). The management of HRM in a strategic alliance is difficult as the alliance operates on an international scale and involves different national and firm cultures (cp. Lajara/Lillo/Sempere 2002, p. 35; 2003, p. 61).

HRM comprises of policies and practices involved in planning, obtaining, developing, utilising, evaluating, maintaining, and retaining of employees (cp. de Cenzo/Robbins 1994, p. 121 et seqq.). These employees should be in the appropriate numbers and have the appropriate skill mix to achieve the organisation’s objectives (Appelbaum/Fewster 2002, p. 67). There are two main areas of HRM, firstly, the leadership and motivation of employees, and secondly, the different human resources practices, including recruitment, selection, training, performance, remuneration, and compensation (cp. Holtbrügge 2004, p. 55 et seqq., 73 et seqq.; Lajara/Lillo/Sempere 2002, p. 36; 2003, p. 63). This thesis will not explore leadership and motivation of issues, but will examine the HR-instruments at Star Alliance (see 3.3.2).

2.2.2 Standardisation of HRM

According to PRAHALAD/DOZ (1986, p. 754; 1987 p. 14) standardisation is the central management of resource commitments across national boundaries in the pursuit of a strategy, which is normally responsibility of the organisational headquarters. A standardised HRM strategy at Star Alliance would mean that all human resource-related activities would be organised on a global scale. This would imply a strategy, which emphasises globalisation over localisation; the member airlines would become increasingly similar and integrated and this integration would be driven through joint technological systems and frequent and advanced communication; the airlines would focus on global-scale efficiency; and a centralised hub would likely be in place to coordinate the integrated airlines (cp. de Wit/Meyer 2000, p. 721). This strategy would lead to international scope (international expansion on a global scale), to international integration (a closely-linked network with increased interdependencies), and to international similarity (declining international variety) (cp. Levitt 1983, p. 735). In this case, the airlines would have a global HRM strategy, which could involve standardised methods for recruitment, training-programmes that are carried out on a world-wide basis, or global renumeration systems (cp. Welge/Holtbrügge 2001, p. 235; 2003, p. 231). In addition, the airlines would have a global workforce, with a single alliance culture, a joint management team and a global resource base, i.e. pool of workers (cp. de Wit/Meyer 2000, p. 726). Increased interdependency between companies brings about changes in HRM practices (cp. Holtbrügge/Mohr 2004, p. 2). The underlying assumptions of a standardised HRM-philosophy include: increasingly homogenous needs and interests of employees, the willingness of employees to sacrifice preferences and adopt standard systems and processes, and the ability to achieve substantial economies of scale through global organisation (cp. Douglas/Wind 1987, p. 744).

2.2.3 Individualisation of HRM

The adoption of a strategy of universal standardisation has been argued to be naive and over-simplistic, as it ignores the inherent complexity of operations in international markets (cp. Douglas/Wind 1987, p. 742). Problems associated with the standardisation of human resources would include, for example, the reluctance to change and cultural incompatibility (cp. Lajara/Lillo/Sempere 2003, p. 65), problems arising through different legal and economic environments, as well as the non-fulfilment of the previously mentioned underlying assumptions for standardisation set out by DOUGLAS/WIND (1987, p. 744). Due to these problems, a locally responsive, individualised HRM strategy is often required. According to PRAHALAD/DOZ (1986, p. 755; 1987 p. 15) local responsiveness refers to resource commitment decisions taken autonomously by a subsidiary in response to primarily local competitive or customer demands. This involves aiming to take into consideration the particulars of employees in the working relationship. Possible areas that have been identified to be adopted for the individual^[50] include working hours, remuneration (cp. Oertig 1995, p. 165), training and development and leadership (cp. Scholz 1994, p. 37), as well as job design, recruitment processes, reward systems, and employment conditions (cp. Lawler/Finegold 2000, p. 12). An individualised HRM strategy would emphasise localisation over globalisation; due, amongst other things, to differences and incompatability of cultures and varied institutional environments, the HR-strategies of airlines would remain diverse and fragmented; the airlines would focus on exploiting their diversity and being responsive to local demands; and the alliance would have a globally-networked structure (cp. de Wit/Meyer 2000, p. 721). The underlying assumptions of an individualised HRM-philosophy include: evidence of heterogeneous needs and interests of workers, the unwillingness of employees to sacrifice their individual preferences for systems and processes, and the limited ability to achieve economies of scale through global organisation (cp. Douglas/Wind 1987, p. 744).

2.3 Theoretical Background

In order to identify the advantages and disadvantages of a standardised HRM strategy, the author will attempt to apply the model of six L’s from PREECE (1995, p. 545 et seqq.). This model was designed to summarise the objectives of international strategic alliances, as well as the positive and negative aspects that are associated with theses objectives. However, the effects of these objectives can be adapted to categorise the potential advantages and disadvantages of a standardised HRM strategy in the airlines of Star Alliance (see 3.1). In order to identify the pressures that make global standardisation and individualisation of activities critical, the author will attempt to apply the Integration-Responsiveness Grid, developed by PRAHALAD/DOZ (1987) to the airline industry, and to Star Alliance and HRM within Star Alliance. These pressures are categorised using twelve criteria, which the author will attempt to apply to the three contexts. These criteria examine the pressures that map the characteristics of business to define managerial demands. Seven of the twelve criteria identify pressures for strategic coordination or standardisation of activities. The remaining five criteria identify pressures for local responsiveness or individualisation of activities (see 3.2).

3. Analysis: Standardisation vs. Individualisation

3.1 Objective One: Benefits and Risks

Alliances are based on incomplete contracts and two opposite forces govern these contracts: the risks and sunk costs associated with a high degree of integration (cp. Kleymann 2003b, p. 13; 2004b, p. 5 et seq.) vs. the benefits associated with the same (Gudmundsson 2005, p. LIX). Exactly which benefits and risks of standardisation and individualisation are relevant, will depend on which stakeholder is being considered, i.e. benefits or risks to whom? The author identifies three main stakeholders: the member airlines, the employees, and the passengers of Star Alliance. This thesis will consider the benefits are risks predominately from the airlines’ and from Star Alliance’s perspective. The six L’s identified by PREECE (1995, p. 545 et seqq.) are learning, leaning, leveraging, linking, leaping, and locking out will now be used to identify the advantages and disadvantages of a standardised strategy.

3.1.1 The Six L’s

Firstly, learning advantages of standardised HRM arise from the inexpensive and efficient acquisition of knowledge and know-how (cp. Preece 1995, p. 545). Knowledge can be defined as, “the whole of rules (know-how, know-what, know-where and know-when) and insights (know-why) that can be extracted from, and help make sense of information” (de Wit/Meyer 2000, p. 337). A closer co-operation on HR-related issues would lead to gains through the partner’s knowledge (Wang 2004, p. 462), and an increased knowledge transfer between airlines (cp. Oum et al. 2000, p. 844). This intra-organisational^[51] knowledge transfer would mean the development of knowledge in one airline which is then integrated and made use of in other airlines (cp. Schlegelmilch/Chini 2003, p. 218, 226)^[52]. One may argue, that there would be a tendency of airlines to increasingly compare, or benchmark their HR-related issues, and share best-practice methods with their partners. However, a standardised HRM policy is not necessarily required to facilitate interchange or benchmarking, as the development of global airline alliances (cp. Blyton al. 2003, p. 9 et seq.), as well as the membership of employees in internationally organised labour groups^[53] (cp. Feldman 2001, p. 123) sufficiently achieves this. Employees also build social networks, which enable the sharing of knowledge to prevent its under utilisation (cp. Bartlett/Ghoshal 2002, p. 38). In addition, knowledge transfer is not always successful, as it depends on several factors, such as sender and receiver characteristics (Wang et al. 2001) and absorptive capacity (Minbaeva et al. 2002). Futhermore, learning disadvantages arise from partner opportunism or organisational challenges, which endanger the stability of a standardised HRM (cp. Preece 1995, p. 546). There exists the risks of unwanted knowledge diffusion^[54], and of partners deciding to terminate the co-operation once they have achieved their objectives^[55] (cp. Hill 2002, p. 445). Increased information exchange could also create an additional conflict situation between airlines and unions. Airlines would possibly aim to reduce wages and employment conditions to the lowest alliance standard, whereas unions would more likely aim to increase wages and employment conditions of their members to the highest alliance standard. Common standards would logically mean improvements for some and worsening for others employees.

Secondly, leaning advantages of standardised HRM arise from improved infrastructure and value-chain activities (cp. Preece 1995, p. 546 et seq.). In terms of HRM, the airlines could rely on their partners to replace or improve their activities related to their technological or network-related HR-infrastructure. Each specific HR activity could be managed by the airline, which has a comparative advantage in that activity (e.g. lower associated costs, resource access), or by the airline, which has already established particularly advanced systems to support that activity. For example, Lufthansa has a very sophisticated Internet portal for the recruitment process. As well as dealing with its group’s policies, Lufthansa could theoretically specialise in providing this tool to and adapting it to suit the needs of its partners. In return, other airlines could for example, specialise in providing a trainee programme for crewmembers. However, KLEYMANN (2003b, p. 7 et seq.; 2004b, p. 10) argues that specialisation in alliances is a risky strategy as it increases interdependencies between members. Therefore, the contradictory requirement exists for airlines to ally (due to resource interdependencies), but also to preserve its stand-alone capability and independence (due to alliance instability) (cp. Kleymann 2004b, p. 10; Vaara/Kleymann/Seristoe 2004, p. 19). Leaning disadvantages arise therefore, when airlines become too dependent on their partners (cp. Preece 1995, p. 547). They commonly wish to remain capable of fulfilling all steps of the value chain, in order to maintain their economical and legal independence (cp. Netzer 1999, p. 215). This is particularly the case, if alliance members place great emphasis on their joint brand name, thereby sacrificing their own identity (cp. Kleymann 2004b, p. 6). If the alliance dissolves, the airlines will be weakened in those HR-activities, in which they were formerly linked to partners and alliance-specific investments would be regarded as sunk costs (cp. Kleymann 2004b p. 6). In addition, airlines also risk their standards or image being negatively affected by that of a partner, and when organisations increasingly introduce the practices of others into their organisation, the competitive advantages of doing so diminish (cp. Wright/Brewster 2003, p. 1304). Hence, airlines should seek to preserve their independent capabilities (cp. Kleymann 2004b p. 10).

Thirdly, leveraging advantages of standardised HRM arise from integrating operations with partners to create or gain access to a new portfolio of resources (cp. Preece 1995, p. 548). If Star Alliance airlines were to extend HR-related issues and coordinate activities on an inter-organisational level, the organisation would be more effective (less staff, lower costs, fewer resources), and more efficient (cp. Goldner 2003, p. 345), as each part of it would recognise interdependence and work together (cp. Eaton 2001, p. 4). Congruence in organisational objectives and motivations would lead to a greater level of standardisation (cp. Lajara/Lillo/Sempere 2002, p.35). However, as KLEYMANN (2004b, p. 6) explains, alliances limit the airlines’ potential leveraging ability created through cooperative agreements with airlines outside the alliance, as membership is bound by exclusivity agreements. Strict guidelines are set to define the nature and extent of collaboration with non-alliance airlines (e.g. only permitted on regional basis). Therefore the airline faces an inability to survive without the alliance, its independent resources are limited, and opportunities to enter a new alliance are reduced. Hence, leveraging disadvantages arise from having to compromise on variety, diversity, and on the ability to solve problems and effectively make decisions (cp. Preece 1995, p. 549). WRIGHT/BREWSTER (2003, p. 1299) argue that in HRM there is no strategy, which is suited to all players and that companies should aim learn from diversity. Diversity has furthermore been observed to matter to customers (cp. Appelbaum/Fewster, 2002, p. 70). For airlines, workforce diversity is however particularly important as they have globally diverse passengers and a heterogeneous workforce would not be capable of understanding their demands (cp. Lawler/Finegold 2000, p. 13). Therefore, airlines should try to create a level of diversity in their recruitment and other HRM practices to represent their diverse customer population, as AIR NEW ZEALAND (2004, p. 23) claims to do. Standardised HRM could lead to an over-homogenisation of employees (Kumar 1992, p. 328, quoted in: Welge/Holtbrügge 2001, p. 235). Airlines would not be able to fully influence and control their strategies, to suit their own best interests (cp. Hungenberg 2001, p. 417). There would also be difficulty in coordinating activities (cp. Netzer 1999, p. 215). The stability of co-operation would be jeopardised by difficulties in sustaining a common ground for independent airlines (cp. Gudmundsson 1999, p. 139). In addition, standardised HRM policies cannot be adapted to meet the individual needs and requirements of the employees. This form of individualisation would however be necessary, in order to increase employee satisfaction and motivation, and help retain the best employees (cp. Lawler/Finegold 2000, p. 2, 14). LAWLER/FINEGOLD (2000, p. 2) in order to attract and retain customers, employees should be satisfied and committed, especially in service situations where customers pay for a quality service.

Fourth, linking advantages as defined by PREECE (1995, p. 549) arise from a closer coordination of vertical activities linking firms to suppliers or customers. In the HRM case, the suppliers are that of labour, i.e. the employees. If the links of each of the airlines to potential employees would be combined, there would be a larger pool of applicants for each position, a larger range of qualifications and experiences offered, and employment could be more internationally sourced. This would especially be the case in Europe, where citizens have the right to work in any other European state and where airlines could have the opportunity to recruit on a European, rather than a national basis. Linking disadvantages could however, arise from greater inflexibility in vertical relations (cp. Preece 1995, p. 549). In terms of HRM, this would be the case if the alliance members developed for example, a joint Internet platform for HR-related topics, as an instrument to link them with employees. Inflexibility is created as the airlines would face high exit costs from this platform, standards would have to be set to suit the alliance as a whole, and the airline would have little autonomy for decision-making. The practical execution of joint systems is also hindered by the loyalty that the employees have to their airline (cp. Netzer 1999, p. 220), which could imply that decisions would still be taken in the best interest of the airline and not of the alliance as a whole.

Fifth, leaping advantages of standardised HRM arise from expanding into completely new markets and by taking advantage of new business opportunities (cp. Preece 1995, p. 550). In HRM, the airlines would benefit from the expertise of its partners by internationally sourcing employment and leaping into new labour markets, which it previously had not considered, due to barriers to entry and lack of knowledge. New opportunities could be, for example, new methods to design working-time, or new ways of developing training or pay structures, which could be adopted from the different corporate strategies. However, although on the one hand, the coming together of different corporate cultures could provide an opportunity for new perspectives, new methods of thinking and new ways of acting to achieve business success (cp. Frühe 2004b, p. 2), the main leaping disadvantages arise from cultural incompatibility (cp. Preece 1995, p. 551). Collaboration in an airline alliance can generally be seen as competition in a different form, as partners have their own objectives and understand how the objectives of partners can affect them (cp. Hamel/Doz/Prahalad 1989, p. 525 et seq.). New business opportunities could be at risk, as interaction can be made difficult by these differing objectives and interests, cultures, and leadership styles (cp. Lajara/Lillo/Sempere 2002, p. 41 et seq.; 2003, p. 62). Success of standardisation depends therefore upon compatibility of cultures and the objectives of partners, as well as the extent of complementary resources that the airlines have, and the relative size of partners (cp. Welge/Holtbrügge 2001, p. 119; 2003, p. 113 et seq.). A standardised HRM is expected not to function efficiently as personnel it requires heterogeneous handlings and personal contacts (cp. Eschbach 2004, p. 39).

Finally, locking out advantages from standardised HRM arise from the ability of alliances to temporary reduce competitive pressure from non-partners (cp. Preece 1995, p. 551 et seq.). The locking out of Star Alliance in the area of HRM could be in terms of recruitment of the right people to do the right jobs. Lufthansa, for example, has an excellent employer image (cp. Ritterhoff 2004, p. 45 et seq.), whereas Air Canada is said to have a poor history of labour relations (cp. Gillen 2005, p. LVIII). It could be assumed that if Star Alliance would be able to build a strong image as an employer, or strong image as a group of employers, the member airlines would be perceived by the public as being more attractive companies to work for. As a result, more highly qualified, experienced people would apply to work for the airlines. However, locking out disadvantages arise due to the fact that this is only a temporary, static, strategic position. Competitors, who in the longer term are also able to form alliances, remove any locking out advantages (cp. Preece 1995, p. 551 et seq.). It may also occur that the competitor alliances become even stronger in the longer term, perhaps by joining forces, and by working together to lock out Star Alliance.

3.1.2 Summary and Résumé

As the previous paragraphs have highlighted, the problem arises, that success through advantages are partly due to standardisation and partly due to individualisation (cp. van Well 2001, p. 4). Table 1 (overleaf) provides a summary of the potential benefits and risks of a standardised HRM policy at Star Alliance, assuming that this strategy is feasible. By placing a “no” in front of each of the advantages and disadvantages of standardisation, the disadvantages and advantages of individualisation are named, e.g. a disadvantage of individualisation would be “no knowledge or know-how transfer” and an advantage would be “no opportunism and conflict”.

The six L’s provide an easily comprehendible, balanced overview of some of the main potential advantages and disadvantages that could be brought about by a standardised HRM policy. However, PREECE actually designed the six L’s concept to categorise the effects of strategic alliances, not of a standardised HRM policy, so therefore, the application of this categorisation is not fully suited to this thesis and several effects my therefore not have been highlighted. In addition, due to a lack of literature on this topic, some conclusions have been drawn from assumptions. All effects are disregarding any barriers, which may be in place to realising standardisation, such as differences in laws and regulatory environment, different cultures and working methods, as well as resistance against such a strategy from employees and their unions. Finally, if the scope of this thesis would have allowed it, the detailed presentation of the advantages and disadvantages of an individualised HRM policy could have been made.

illustration not visible in this excerpt

Table 1: The Advantages and Disadvantages of Standardisation

Source: Author’s depiction according to: Preece p. 545 et seqq.

If the scope of this thesis would have allowed it, the highlighted advantages and disadvantages of a standardised and individualised HRM strategy could be used to help attempt to plot the HRM function onto the relative advantages of standardisation and individualisation grid, developed by GHOSHAL (1987, p. 429). This grid currently plots the functions of research and development, information technology, sales, marketing and service, but fails to consider the function of HRM. The educated opinion of the author would suggest that the function HRM would be positioned in a similar field, as is the service function, with high advantages of individualisation and relatively lower advantages of standardisation. However, this opinion is neither theoretically nor empirically sufficiently justified, and a more extensive analysis would be necessary in order to position the function accurately.

3.2 Objective Two: Analysis of Pressures

Having identified the potential advantages and disadvantages of a standardised HRM policy, the author would now like to attempt to identify the extent of the pressures, which make this strategy crucial for the airline industry, for Star Alliance and for HRM in Star Alliance, and conclude whether or not a standardised HRM policy is necessary.

3.2.1 Pressures towards Standardisation

The seven criteria, laid down by PRAHALAD/DOZ (1986, p. 754 et seqq.; 1987 p. 18 et seqq.) to identify the extent of pressures for standardisation are (1) the importance of multinational customers, (2) the presence of multinational competitors, (3) the level of investment, (4) technological intensity, (5) pressures for cost reduction, (6) universal needs, and (7) access to raw materials and energy.

Firstly, the dependence of a business on multinational^[56] customers creates the need for standardisation, as they have the ability to compare global prices and demand a standardised service and level of customer support (cp. Prahalad/Doz 1987, p. 18 et seq.). In the airline industry, it is important to distinguish between two types of customer, the tourist and the business traveller. Although the tourists stem from a global range of countries, very few individual tourists are multinational in themselves, as they normally have ties to a certain country or region. The business traveller on the other hand, does not represent an individual, but a business, and often, a multinational business. This business will aim to leverage its global sourcing of business travel and to negotiate global corporate contracts with the airlines, which will include a certain common service level. Revenue from business travellers accounts for a large portion of revenues for most traditional airlines (cp. Netzer 1999, p. 90). Each individual corporation would normally only represent a small fraction of the airlines revenues, but when combined, the alliance is, to a certain extent, dependent on these multinational customers. However, although these multinational customers can compare global prices, in business travel, factors such as booking flexibility and speed of travel at a specific time of day are equally important. In terms of HRM, here the customer could only be defined as potential or actual employees of the airline, as well as the unions, which collectively represent the employees. In this sense, the global price is the wage that this individual would receive if he worked in the different airlines. The individual is not multinational, as global labour mobility does not exist. The employee is bound to a specific country or region^[57], by employment and work-permit regulations, his qualifications and experience may be geographically limited, his inability to speak many languages or his lack of knowledge about international cultures and his connections to family and friends. The airline is by no means dependent upon him. In the airline industry some unions are organised on a global basis (see 3.4.1). However, these unions adhere to different labour legislation and practices, so the actual representation takes place on a regional level. Hence, with no multinational customers in HR, there is no pressure for standardisation.

[...]

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^[1] Alongside the passenger business, airlines also transport cargo and post (cp. Netzer 1999, p. 18).

^[2] For a definition of HRM, see 2.2.1; for a definition of airline alliance, see 2.1.2; for a list of the member airlines and more information about Star Alliance, see section 2.1.3.

^[3] Primary sources of information, such as interviews and electronic mails, will be referenced according to their author, year and page number (in Roman numerals) in Appendix A or Appendix B of this thesis.

^[4] For a definition of individualised and standardised HRM policy, see 2.2.2-2.2.3.

^[5] “Industry expert” will be the term, used to refer to authors who have written about, University professors who teach, or people who work in the areas of aviation and/or HRM.

^[6] However, no specific detailed information about HRM practices in the different airlines is needed, as this thesis does not aim to provide a comparative study of airlines.

^[7] Please note that IATA states that approximately five percent of 2004 passenger number growth was due to recovery from the negative effects on airline travel of the SARS disease (cp. Reuters 31.01.05a).

^[8] Ashgate Publishing, Gower House, Aldershot, Hampshire, UK.

^[9] Human factors include communication between employees, decision-making processes, working in teams, stress management and workload management (cp. Lima 2000, p. 86).

^[10] The only important markets, in which Star Alliance has no full partners, are China, India, and Russia (cp. Pilling 2004, p. 8; Rogl 2004, p. 90).

^[11] See www.staralliance.com

^[12] Human resources are said to be competency based and specific to firms, which makes them hard to transfer externally (cp. Holtbrügge 2004, p. 26).

^[13] Due Star Alliance’s claimed higher level of integration than other alliances (cp. Wang 2004, p. 457).

^[14] Service can be judged by comparing the type of seating, food and beverage, friendliness of airline personnel, and flight punctuality (cp. Welge/Holtbrügge 2003, p. 337).

^[15] After deregulation, airlines had to become more competitive: they negotiated less favourable terms of employment; job security was reduced and part-time personnel was increased; remuneration was made more variable and correlated with profit and performance; and wages were reduced, even though employees had to become more productive and flexible (cp. Gil 1990, p. 324).

^[16] Lower overheads are achieved by leasing instead of purchasing of aircraft; having operations only in second-tier airports; and selling via direct channels, such as internet (cp. Blyton, P. et al. 2003, p. 9)

^[17] Examples include: Southwest, America West and Westjet, but not Ryanair (cp. Gillen 2004, p. LVII).

^[18] After September 11th 2001, international airlines reduced capacity, cut jobs and aimed to reduce costs (cp. Harvey/Turnbull 2002, p. 15, 19; Kleymann 2003a, p. 15). United and US Airways terminated or furloughed thousands of employees, including pilots, flight attendants, mechanics, ramp service, customer service, management, and salaried employees (cp. UAL 2004, p. 66; United 2004, p. 29).

^[19] Human errors can occur due to a lack of cognitive and social skills, failures of interpersonal communication, poor crew coordination, bad decision-making, misunderstandings between individuals, and failures in leadership (cp. Flin/O’Connor/Mearns 2002, p. 68; Goodwin/Johnson 2000, p. 134).

^[20] For example, full-motion flight simulators are used to provide a virtual flying experience and help develop a pilot’s flight skills (cp. Goodwin/Johnson 2000, p. 134).

^[21] This is disregarding legally required safety standards.

^[22] Customer satisfaction refers to the extent to which the subjective expectations of a passenger about how the flight service should be relate to the actual experience of the flight service (cp. Netzer 1999, p. 25).

^[23] Almost all airlines offer their passengers lounges, catering facilities, frequent-flyer programmes and other customer facilities (cp. Blyton et al. 2001, p. 450).

^[24] Front-line employees that deal directly with customers include telephone and sales staff, ground staff and cabin crew (cp. Lorenzoni/Lewis 2004, p. 14).

^[25] The number and size of aeroplanes determine capacity. Capacity is a relatively inflexible fixed cost element; hence, it is in the best interest of alliance members to align and coordinate their capacity strategies on different routes (cp. Netzer 1999, p. 192).

^[26] Code sharing is where an airline sells tickets under its own designator code and the actual flight is provided by a partner airline (cp. Air Canada 2004, p. 1).

^[27] The term “strategic” refers to the long-term commitment of the partners, the development of common goals and the orientation on the potential for success (cp. Netzer 1999, p. 12, 17).

^[28] This relationship with simultaneous co-operation and competition has been defined as “co-opeition” (cp. Nalebuff/Brandenburger 1996, quoted in: Netzer 1999, p. 5). This conflicting relationship is said to be the reason why many alliances fail (cp. Netzer 1999, p. 15).

^[29] Star Alliance member airlines launched a comprehensive frequent-flyer-programme in August 2002 (cp. Star Alliance 2003a), in order to increase customer loyalty and bookings with alliance airlines.

^[30] Regional partners provide cost-effective access to new markets, and as these members do not enjoy full voting rights, they allow alliances to expand their networks in a cost-effective fashion, whilst simultaneously maintaining control (cp. Pilling 2004, p. 8).

^[31] Other types of co-operation (joint ventures, contractual agreements, fusions or mergers etc.) can achieve similar advantages to strategic alliances (cp. Welge/Holtbrügge 2001, p. 113 et seqq.; 2003, p. 108 et seqq.).

^[32] When sharing resources, it is important that the strategic “fit” exists, i.e. that the alliance partners are compatible (cp. Netzer 1999, p. 33).

^[33] For examples of equity co-operation between Star Alliance partners, please see section 2.1.3.

^[34] SAS is the national carrier of Sweden, Norway and Denmark (Reuters 07.10.04a).

^[35] The Austrian Airlines Group consists of the regional Star Alliance member, Lauda Air and Austrian Arrows, which enjoys the same conditions as Austrian Airlines. Therefore, since March 2003, a separate membership of Tyrolean Airlines in Star is no longer necessary (cp Austrian Airlines 2004, p. 16).

^[36] The Star-regional members Adria, Blue1 and Croatia, have almost 3.5 million combined annual passengers and in November 2004, the airlines employed over 2000 people (cp. Star Alliance 2004d).

^[37] For example, United is more important to Lufthansa than is Air New Zealand, as the co-operation in the network between Lufthansa and United is much more intense (cp. Frühe 2004, p. XXXIII).

^[38] An example, would be the Star airline, ANA, in its highly attractive, but difficult to enter, Japanese market (cp. Kleymann 2004b, p. 4).

^[39] The SAS Group consists of Scandinavian Airlines, subsidiary and affiliated airlines (Spanair, Breathens, Blue1, and airBaltic, Estonian Air), airline support and related business (SAS Technical Services, Ground Services, Cargo Group, and SAS Trading, Flight Academy, IT Group), as well as the hotel business (Rezidor SAS) (cp. SAS Group 2004, p. 2).

^[40] The Lufthansa Group consists of the following business units, which in 2003 employed the following percentages of its employees: Passenger Business (37%), Catering (34%), Maintenance Repair and Overhaul (MRO) (19%), Logistics (5%), IT Services (3%), Service and Financial Companies (1%) (author’s calculation, according to: Lufthansa 2004c, p. 39).

^[41] This would include Air Canada, Lufthansa, SAS, Thai Airways, and United.

^[42] This would include Austrian, bmi, LOT Polish Airlines, Lufthansa, SAS and Spanair.

^[43] Conclusions drawn from these airlines could provide a good representation of the alliance as the founder members contributed towards shaping the alliance, in November 2004 they employed over sixty percent of all alliance employees (author’s calculation according to: Star Alliance 2004c), and they represent three different continents; the SAS Group owns Spanair, and the SAS and Lufthansa Groups combined have fifty percent holdings in bmi (cp. Lufthansa 2004c, p. 183; SAS Group 2004, p. 3, 37, 38). However, this choice would mean that only one third of the members would be considered; these airlines are the largest in the alliance and have been cooperating longer than other airlines and therefore may have different approaches than the other smaller members; and United Airways is currently operating under bankruptcy protection and any recent actions undertaken in the HR area can not be used as a standard example.

^[44] This choice of airlines would provide a less good representation of the alliance as the American and Asian airlines are not included; in November 2004, these airlines only employed twenty percent of all Star Alliance employees (author’s calculation according to: Star Alliance 2004c), the Star Alliance airlines with the greatest number of employees, United, Air Canada US Airways and Thai are not considered; and there are many areas in which laws and regulations governing employees of the European aviation industry differ.

^[45] Synergies can be defined as, “increases in competitiveness and resulting cash flows beyond what the two companies are expected to accomplish independently” (cp. Sirower 1997, p. 451).

^[46] Examples of global distribution systems include Galileo, Amadeus, Abacus, Sabre, Apollo, SystemOne, Worldspan (cp. Beyhof/Ehmer 1995, p. 58, quoted in: Netzer 1999, p. 118).

^[47] GmbH [Gesellschaft mit beschränkter Haftung] is the German equivalent of Ltd.

^[48] The units include IT, Project Management, Products and Services, Corporate Affairs, Loyalty and Marketing, Commercial, Finance and Strategy.

^[49] Projects that Star Alliance Services GmbH has been involved in, include the programme „Move under one Roof“, which aims to improve processes at large airports by achieving quick transfers for passengers, by concentrating Star airlines as close together as possible, or ideally in the same airport terminal, and by having efficient check-in facilities and comfortable lounges (cp. Lufthansa 2002a, p. 6), as well as several IT-related systems including the baggage-enquiry system, “World tracer” (cp. Frühe 2004, p. XXXVI).

^[50] These examples refer to the individual employee. The author believes however, tat these examples could also be applied to the individual airlines, and subsequently, their individual employees.

^[51] Intra-organisational means between two or more organisations.

^[52] For example, this could involve the transfer of information about labour markets, labour costs or labour relations, as well as training methods, technology and management techniques.

^[53] Such as the Association of Star Alliance Pilots (ASAP), the European Cockpit Association (ECA), and the Flight Attendants’ Association (FAA) (cp. Feldman 2001, p. 123).

^[54] For example, the unwanted exchange of confidential company-specific information.

^[55] For example, such as knowledge absorption, resource gains, market entry.

^[56] In this sense, multinational simply means present across international boundaries.

^[57] For example, within Europe labour legally has international mobility. However, due to different languages, differences in schooling and educational systems and qualifications, and lack of country-specific knowledge, this labour mobility within Europe is also very limited.