Airline Alliances free essay sample

Liberalisation of the Airline Market now allows carriers to engage in alliances to form more powerful synergy’s and capture a larger share of the market. Since the introduction of The Airline Deregulation Act in 1978 in North America and similar acts worldwide the aviation industry has become one of the fastest growing industries. The main objective of this was to allow the market place to influence the development of airlines. The main development from this was that airlines find it more beneficial if they join alliances. In this report I will discuss why airlines engage in alliances, identify the strategic benefits of alliances and assess their effectiveness. Why airlines engage in alliances: The primary reason why airlines form strategic alliances is to expand their market and operations without going through the costly process of adding new aircraft or extra employees. This action allows an airline to impose itself amongst a new market quickly and expand its likelihood of new revenue streams under the guidance of a party already well established in that market (the strategic partner). We will write a custom essay sample on Airline Alliances or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Alliances also offer a greater network of flights to the consumer. The more airlines in an alliances means that there are likely to be more landing slots and facilities’ available globally to offer a more comprehensive network of flights to the customer. Finally alliances give the opportunity to the customer to build up loyalty through transferable air miles arrangements. Another reason why airlines engage in alliances is because this kind of agreement carries uncertainties that are not manageable through contractual agreements. It allows Airlines an opportunity to share knowledge, costs and risks. Strategic Benefits of alliances: The strategic benefits of Airline Alliances are plentiful and can be seen by the number of airlines currently involved in Airline Alliances. The main strategic benefit of Airline Alliances is that carriers can achieve lower costs through economies of scale. Partner airlines in an alliance can share costs therefore increasing profits considerably. By pooling resources alliances can reduce unit costs and achieve greater cost efficiencies through more efficient utilisation of resources such as sharing landing slots, maintenance teams, IT systems and labour. Airlines also have the opportunity of engaging in joint purchasing agreements and make considerable savings. When we look at the Star Alliance which was founded in 1997 we see that they have made considerable savings from joint purchasing agreements. Earlier this year The Star Alliance leveraged its purchasing power with the procurement of new economy class seats. As well as reducing the cost of seat ownership the airline will also benefit of reduced future fuel costs due to the seats being made of lighter materials. The demand side benefits of Strategic Alliances include accessing new markets through availing of new landing slots. Landing slots are a big plus from strategic alliances. Currently Virgin Airways are looking for landing slots at London’s main airports to fly to destinations in Asia including Bangalore. Through the potential prospect of joining the Alliance Sir Richard Branson hopes to secure these slots. Alliances enable airlines to offer a more seamless network of flights to customers due to their collaborative efforts. Alliances also have the option to use code sharing which enables consumers to book space on the same flights through multiple airlines websites. Effectiveness of alliances: The effectiveness of strategic alliances can be seen in the numbers. In 2011 the Star Alliance saved $27million from joint purchasing arrangements associated with fuel logistics. Also just last week CEO of Virgin Atlantic Richard Branson announced that his airline could yet be in line to join one of the main Airline Alliances. Having previously spoken strongly against alliances, Branson is now set to join one of these long standing alliances which is clear indicator how effective they are. Another interesting fact is that the Star Alliance market share is 28% of the global market which is more than the combined market share of all the global airlines that are not part of an alliance. This shows that in order to gain access to a majority of the market you need to be part of an alliance.