Global networking strategies: Strategic alliance

In Airline industryCopyright: Puan Hamimah Hassan

UPM

Definition A strategic alliance is an agreement

between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. This form of cooperation lies between Mergers & Acquisition M&A and organic growth.

ARES OF STRATEGIC ALLIANCE products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, intellectual property.

TRENDS OF AIRLINE BUSINESS Airline merges in USABudget airlines rising such as Virgin Air, Air AsiaVulnerablity to oil-price shocks, accidents and

terrorism. Airlines are beginning to lose their national

identity as cross-equity holdings (such as Air Asia Malaysia, Air Asia Thailand)

From code sharing to strengthening airlines’ alliances

Jet fuel as the single largest expense for airlines, affects airline profitability

Phases From Internationalisation to Globalisation period In Internationalization period- 1940’s -

increase in competition as number of airline increases, thus airlines engage in code sharing strategy

In globalisation period - 1980s and early 1990s, partnership among airlines intensified from merely code sharing to cross- equity. In 1997, formal alliance called Star Alliance began.

Foreign ownership in airline, 1995

COMMERCIAL AIRLINEAn airline is a company that provides

air transport services for traveling passengers (PASSENGER AIRLINE) and freight (FREIGHT AIRLINE).

Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit.

Generally, airline companies are recognized with an air operating certificate or license issued by a governmental aviation body.

COMMERCIAL AIRLINEThe International Air Transport Association

(IATA), is the trade group for the world's biggest airlines.

Malaysia Airlines, Air Asia, Malindo Air are members of IATA.

Industry profits of the airline industry is expected to hit a record $19.7 billion in 2014, an increase of more than 50% on the $12.9 billion estimate made for 2013.

COMMERCIAL AIRLINEGenerally, airline companies are recognized

with an air operating certificate or license issued by a governmental aviation body.

Example, Malaysia Airlines and Air Asia are certified by Department of Civil Aviation (DCA) of Malaysia.

Airline Strategic Alliance (ASA)

The first airline alliance started in the 1930s, as Panair do Brasil and parent company Pan American World Airways

Code sharing- common forms of airline partnership

CODE SHARING When two or more airlines use their own flight codes

or a common code on a flight operated by one of them

It allows greater access to cities through a given airline's network without having to offer extra flights, and makes connections simpler by allowing single bookings across multiple planes.

Most major airlines today have code sharing partnerships with other airlines and code sharing is a key feature of the major airline alliances.

Other forms of practices of ASAMarketing alliances –

Cross Equity – E.G. Air Asia Malaysia, and Air Asia Thailand formed Air Asia

Strategic Alliances Currently , there are three forms of alliances

1/ sky alliance (28 members)2/sky team (20 member)3/ One World (13 members) 4/ Wing

Malaysia Airlines is a members of One World.

Strategic AlliancesStrategic alliances are not necessarily

involved foreign ownership, example: Air Asia is a Malaysia based company,

engaged in alliances by serving their international routes, and these services are operated by Air Asia Thailand, thus foreign equity is involved in Air Asia Berhad.

Malaysia Airline is a member of One World but own solely by Malaysian equity.

Air Asia and Malaysia Airlines, once wanted to do share swap but finally pull out from getting alligned

Advantages of ASA Entry and exit to a marketcode-sharing,amalgamation of frequent flyer programs, increased traffic feed, schedule coordinationleading to enhanced ‘perceived’ seamlessness air travel elimination of duplication of certaintasks (such as offices),easier access to congested airport gates, technical cooperation,access to established system of travel agents

Disadvantage of ASADirect reduction of competition and market is

moving towards monopoly. When not many airlines serving an airport due to airline partnership, consumers have less choices of schedule and types of airlines. Reduction of airfares, therefore only at minimal.

Cross booking issue- Customers booked Airline A, but automatically given to take Airline B to reach their destination.

Mutual benefits among partners should be carefully assessed

Conclusion Strategic alliance is an important airline

strategy in line with globalisation

Advantage to airline operators is larger as compared to customers

Mutual benefits among partners should be carefully assessed