I.

EXECUTIVE SUMMARY

In recent years, airlines have hurried to create alliances out of fear of being left

behind. The international airline sector has now solidified into three big alliance

groupings: The Star Alliance, Oneworld Alliance, and SkyTeam Alliance. In the

1960s and 1970s, information technology helped international tourism by

permitting mass, standardized, and tightly packaged tourism. The US Airline

Deregulation Act of 1978 opened up a new universe of competitive dangers and

possibilities for airlines operating in the United States. The 1944 Chicago

Convention created the bilateral system of air service agreements between pairs

of national governments, which has controlled international air transport ever

since.

The conditions of bilateral agreements reflected the nations' bargaining power

and contemporary aviation policy; as a consequence, productivity was frequently

low and expenses were high. The European Union completed deregulation of

international aviation services in April 1997. Domestic service deregulation began

in the United States in 1978, followed by Canada, the United Kingdom, Australia,

and New Zealand in the 1980s.

A strategic alliance is an agreement between two or more parties to work

together to achieve a set of mutually agreed-upon goals while maintaining

separate entities. Below are the purpose of strategic alliances:

  Developing new or existing routes, for instance, becomes far less risky if the

partners operating the routes have firmly entrenched marketing strengths in

the two markets at either end of the routes.

 New entrants should sink resources to acquire such information.

 Collaborate with partners which have a different set of such attributes.

 Use strategic alliance as defensive ploy to reduce competition.

Specific resource, skills or competence inadequacy or imbalance can be

addressed by collaborating with partners which have a different set of such

attributes and can therefore compensate for internal deficiencies. Incumbent

suppliers should have more information on market being served and can tailor

their services to specific customer needs. Give support by risk-sharing strategic

alliances and use them as an attractive mechanism.

II. TIME CONTEXT

The main problem with this study's coverage of a long history of working in a

partnership exemplified by the International Air Transportation’s (IATA) bilateral

agreements and strategic alliance is that certain airlines have taken a different

competitive attitude. The bilateral system of air service agreements between

pairs of national governments was created by the Chicago Convention in 1944.

In the 1960s and 1970s, the US Airline Deregulation Act of 1978 allowed airlines

to operate within the United States. In the early 1990s, the emphasis was on the

efficiency benefits made possible through alliances and as a result, airlines

 focused more clearly on the strategic rationale of the specific partners. Strategic

alliances are employed as a defensive strategy to lessen competition since

transforming a rival into a partner is an evident benefit of strategic alliances.

III. VIEW POINT

Strategic Alliances in the Airline Industry consist of Star Alliance, One World

Alliance and Sky team Alliance. It was associated by International Air Transport

Association (AITA) that ensures that no airlines should be left behind. They

conduct an annual conferences and bilateral agreements between the carriers

operating routes.

IV. PROBLEM STATEMENT

Economic restructuring through the philosophy of economic disengagement by

the governments in many parts of the world has, over the last few decades, had

a major impact on airline industry structure. There are some airlines that do not

agree to the alliance because some of them do not want to leave because

failures are often attributed to unrealistic expectations, lack of commitment,

cultural differences and insufficient trust.

V. STATEMENT OBJECTIVES

 To determine the strategic alliances that we commonly seen on airline

industry.
  To understand how it shaped and brought improvements and changes in the

industry.

 To increase the market coverage, through the strengthening of market

position on certain routes.

 Provide benefits to customers in terms of improved service.

 To make an airline industry not left behind and to make services more

convenient to the passengers.

 To know the advantages and disadvantages of forming of alliances.

 Identify the benefits and drawback of airline strategic alliances.

 Identify the economies scales, scope and learning.

 Determine the reasons behind the airline alliance success and failures.

 Maximize the strategies of alliance formation.

VI. AREAS OF CONSIDERATION

A. External Drivers Strengths Weaknesses

a. Information revolution
Advanced computer reservation systems have
1. X
been under development for a long time.
Produced a powerful marketing tool by directing
2. travel agents' booking preferences toward the X
first flights.
Through codes of conduct, bias has been
3. eliminated, at least in Europe and North X
America.
 Consumers use information to compare
4. X
expansion rates.
b. Economic restructuring
Economic disengagement in many parts of the
1. X
world has had a significant impact on aviation.
Contestable Markets has argued for the
2. removal of restrictive market entry barriers in X
the form of deregulation and privatization.
Airlines in the bilateral system of air service
3. agreements charge the same fares and X
frequently share markets and income.
International airlines are either publicly owned
4. X
or have significant government stakes.
c. Global competition
Due to various strategic alliances, consumers
1. X
pay more or reduced fares.
Particular airlines are sub-brands of the
2. umbrella brands, which represent themselves X
as 'umbrella' brands.
create standardized items that are sold through
3. X
a standardized marketing strategy.
Improvements in communication and
4. transportation technologies, as well as greater X
global travel.
External developments in important markets are
5. X
a driving force for alliance creation

B. Internal Drivers Opportunities Threats

a. Risk sharing
1. Developing new or existing routes. X
2. Seen as an attractive mechanism. X
The firm must retain flexibility, and not be over-
3. X
reliant on any one partner.
b. Economies of scale, scope, and learning
1. Possible diseconomies at the largest airlines. X
Had a big impact on passenger numbers,
2. market share and both airlines financial X
performance.
Have strong established positions in certain
3. X
markets.
c. Access to assets, resources and
competencies
1. Poor resource allocation. X
A participant must be able to protect its own
2. competencies even while interacting with the X
alliance over a continuing period of time.
Weak management involvement for less equity
3. X
stake.
d. Shape competition
strategic alliances can be used as an alternative
1. X
to reduce competitors.
The long standing operating alliance such an
2. X
offensive positioning.
Can hinder the abilities of competing firms to
3. X
retaliate by binding them as allies.
e. Alliance structure and scope
The foreign market entry mode viewed as
1. X
critical and control.
characterized by high capital intensity, contrary
2. X
in the service sector.
 Determines risks and returns, the amount of
relational friction between buyers and sellers,
3. X
and ultimately the performance of
the investment abroad.
f. Evaluation of alliance performance
the alliance added value to a participant worth
1. more to enter into an alliance than to undertake X
a venture on its own.
To protect its own
2. competencies while interacting with the alliance X
over a continuing period of time.
the firm retain flexibility and not be over reliant
3. X
on any one partner.

VII. ALTERNATIVE COURSES OF ACTION

Alternative Course of Action Advantages Disadvantages

1. Developing or protecting a The objectives are There is little chance of
firm's competitive openly shared, future competition
advantage or core cultures of the such as when the
competence by acquiring organizations are partners are in
incremental abilities in a similar enough to adjacent industries.
critical area can sometimes enable process and
be enhanced with the methods to be
assistance of an leveraged, and
experienced partner. governance structure
of the alliances is
established to promote
learning at the
executive, managerial
 and operational levels.
2. Creating Future Strategic Investing in an alliance Not fundamental to
Options with a distribution and achieving a business
support services objective and could
company that had become critical in the
incremental distribution future.
capacity rather than
invest in expanding its
own local distribution
capabilities.
3. Conduct an online poll of To have a better It may take longer to
airlines that are not on understanding of why determine whether the
board with the alliances other airlines do not data gathered is
want to join alliances accurate.
and to assist in
determining what
needs to be adjusted.

VIII. Decision Matrix

Likert Scale

5 – Most Likely 4 – More Likely 3 – Likely

2 – Less Likely 1 – Unlikely
Criteria ACA #1 ACA #2 ACA #3

Profitability 5 5 5

Effectivity 4 5 5

Ease of 4 4 5

Implementation

Cost of Requirement 5 4 4

Timeliness 4 4 5
 Total 22 22 24

A. Profitability

All ACA got the same weight of 5 interpreted as most likely. This implies that they are

viewed as the courses of action that will definitely help the companies to gain profit

should they be implemented.

B. Effectivity

ACA 2 and 3 got the highest weight with a verbal interpretation of most likely This

means that creating future strategic options and conducting an online poll of

airlines is the most effective action to undertake because it will help the

companies to solve the problems easily that will surely benefit from it. In

comparison, ACA 1 which obtained a weight of 4 interpreted as more likely, this

implies that the two other courses of actions are also effective ways to be

implemented which can also help the companies on their operations.

C. Ease of implementation

ACA 3, which obtained a weight of 5 interpreted as most likely, appeared to be the

easiest action to help the company solve its identified problem. Therefore, conducting an

online poll of airlines is the easiest action to implement.  ACA 1 and 2 got the same

weight of 4 with verbal interpretation more likely. This means that the two are easier to

implement and will also great help to the airline companies.

D. Cost requirement
 ACA 1 got a weight of 5 interpreted as most likely. It clearly shows that the

biggest cost to execute is developing or protecting a firm's competitive advantage

or core competence by acquiring incremental abilities in a critical area can

sometimes be enhanced with the assistance of an experienced partner. On the

other hand, AC 2 and 3 obtained the same weight of 4 interpreted as more likely,

this means that if these two will be implemented it will have a lesser cost

compared to ACA 1.

E. Timeliness

ACA 3 got a weight of 5 with a verbal interpretation of most likely. This means

that conducting an online poll of airlines that are not on board with the alliances is

the timeliest action to consider by the airline companies. ACA 1 and ACA 2

obtained the same weight of 4 interpreted as more likely. This means that the two

ACA is considered as the second priority of the action.

Plan of Actions

Corporate Vision
“Working together to define the future growth of an industry that links and enhances our

world with safe, secure, and sustainable air transportation”

Corporate Mission
“Execute leadership in managing a portfolio of alliance goods and services in

accordance providing Airline Partners with the option of cost-effective cargo outsourcing

assistance handled by a competent global organization”

Corporate Objectives

 Ensure that no airlines should be left behind.

 Provide a system that allow airlines to be monitor, manage and control their

capacity.

 Evaluate the performance of alliances given objectives.

 Enhanced choice of destinations through the marketing of alliance partner’s route

networks.

 Alliances must emerge each headed by one of the major American airlines.

Strategies

1) Airlines required corporate partners that might help them expand their network

coverage.

2) Compile a list of loyalty programs.

3) Form alliances to expand your market reach at a cheaper cost and with less risk.

4) Present different sorts of partnerships.

5) Learn to collaborate in a variety of ways that range in complexity and scale.

Policies

1) We will implement safety rules and regulations which aim to protect the

international and domestic companies.

2) We will observe laws and ordinances for government involvement and the

implementation of the severe economic rules on air traffic lay in several aspects

such as fear of market failure, national prestige, safeguarding of national

defense, or concern about a lack of safety due to free competition.

3) In the case of bilateral air agreements, we will observe the government

memorandum to understand the aim in arranging traffic rights between two

countries in terms of routes to be flown or frequencies to be tendered.

4) Any exclusion or limitation of responsibility imposed by Alliance must apply to

and be for the benefit of Alliance's agents and representatives, as well as any

carrier and its agents and representatives whose aircraft are used for carrying by

Alliance.

5) Purchasing insurance from an insurance company can usually provide additional

safety. Any restriction of responsibility under these terms of carriage or the

applicable Conventions may not impact such insurance.

6) We will gather personal information about you in order to provide transportation

commodities and legal purposes.