Strategic Alliances and Cross-Border Mergers in Airlines: Analysis

This report provides an in-depth analysis of strategic alliances and cross-border mergers within the airline industry. It begins by examining the challenges faced by airlines, particularly in a competitive and unstable global market. The report highlights the trend of airlines forming strategic alliances to enhance competitiveness and share resources, contrasting this approach with mergers and acquisitions. It explores the reasons behind these alliances, emphasizing benefits such as technology transfer and improved performance. Furthermore, the report identifies and analyzes the main drivers pushing companies towards cross-border mergers, including changing global economic conditions, cultural variances, legal regulations, and political scenarios. The study offers insights into how these factors influence airline business decisions, ultimately contributing to industry growth and stability. The report also discusses the advantages of strategic alliances in terms of cost-effectiveness, technology exchange, and operational improvements, while also considering the role of advanced technologies in reducing carbon emissions and enhancing customer satisfaction.

MANAGEMENT

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Abstract
Companies in different industries are facing many types of challenges in which competition
along with decreasing stability of the global market are the major once. In this report, the
strategic alliances made by the companies and their preference to choose it over merger and
acquisition have been discussed. It highlights the fact that global airlines companies are
entering into the alliance with each to become a larger force that can gain competitive
advantage over the rivals. Such strategic alliances help the companies to share each other
resources so as to improve their performance and fight with the economic challenges faced by
the company in different parts of the world. This report also identifies and produces the
analyses over why the companies are looking for the cross-border mergers especially in the
recent times. All the major drivers for this kind of mergers have been explained with
examples.

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Content
s
Introduction...........................................................................................................................................2
Reasons why international airlines choose to enter into alliance...........................................................2
Main drivers that pushes firms into cross-border mergers.....................................................................4
CONCLUSION.....................................................................................................................................7
REFERENCES......................................................................................................................................8

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Introduction
Airlines Industry in the last few years especially in the last decade after the period of
recession in the world has faced many kinds of challenges. They are taking various strategic
measures so as to improve the conditions of their business. Going into alliances has been
highly preferred by the company over any other kinds of alliances such as merger or
acquisition (Kleymann and Seristö, 2017). Changing international regulations and global
environmental issues are considered to be the major reasons for this type of strategic
decision. Such alliances support each other especially in terms of technology transfer and
other process related issues. This is helpful for improving each other’s performance
especially in terms of growth and profit margins. This report analyses the reasons why
international airlines choose to enter into alliances to meet the challenges they are facing. It
also evaluates the main drivers that push the airlines companies in the cross-border mergers.
Reasons why international airlines choose to enter into alliance
Airlines companies operate at the global level and the number of companies that are entering
into the global airlines market is huge. In search of new opportunities companies need to find
a more stable market. Since the numbers of tourists both at international level and domestic
levels are increasing at higher speed, it becomes essential for the organisations to become a
more competitive force that could have an edge over the rivals (Merkert and Morrell, 2012).
With the restricted amount of resources and increasing challenges related to sustainability,
expansion becomes a greater challenge. In such an environment making a cooperative
relationship with other firms could make them a bigger competitive force. Among the
different forms of cooperative alliances, airlines industry mostly chooses strategic alliance
over the others. Strategic alliance is an agreement among the two firms that aims to sell
products of each other to consumers. In order to co-develop a technology, product or
process, companies generally do such type of alliances. Strategic alliances are either largely
informal or are legally bonded (Lawton, 2017).
Merger and acquisition is highly successful in other industries but it is not suitable in the
Airlines industry. This is because by acquiring a company can only add to the resources and

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capabilities but this is not all that a company requires. After merger and acquisition company
will use only those strategies that it has been using and it might not provide them with any
kinds of benefits. Airlines companies operate at different routes of which some might have
edge over the others at any particular route (Amankwah‐Amoah and Debrah, 2011). Strategic
alliances help them to support each other in their operational areas by exchanging skills and
strengths of each other that could benefit them at the global levels. For example if a company
is operating on one route and they aim to have flights on other route, they can take the help of
their strategic allies to provide them with the same. This is not only going to benefit
customers but it also supports firms in adding customer base. This can be understood by the
fact that every organisation has a particular customer base and all of them wants that they get
connected flights to all the places in the world. This can only be possible when the companies
are in strategic alliance.
Take an example of Air India, when the Indian government tried to disinvest in the company,
there was no purchaser who came for its acquisition and merger. The major reason for it is
the fact that Air India is facing lots of challenges especially related to service quality and
improper management of operations. Apart from this Air India was also facing financial
problems especially the fact that they have taken loans for various purposes. With the
increasing fuel prices, finance is becoming a major challenge for most of the companies
(Merkert and Hensher, 2011). Taking the help of strategic partners most of the companies are
providing each other with resources that will help them managing their business. Since the
legal regulation in the airlines industry is also increasing hence they need to follow all these
regulation. Since the laws related to aviation and environment protection differs from country
to country hence it is a serious problem for the companies to manage their business. This can
be understood by the fact that if the company do not give service as per the nations standards
or if they fail to manage the environmental laws in that region then there is a serious chance
that they may face legal compliances.
There are several types of things that a company can do to manage the business operations.
First is that both the companies are from different cultures hence they could give training to
the staffs of each other so that they could learn how to operate in different cultures. This
plays a highly crucial role in the expansion plans of the company. This is not possible in the
case of merger and acquisition as in the case of merger and acquisition company becomes
one unit rather than remain as two different individual units (Liou, 2012). This creates greater
chances of being a failure. The biggest reason for this is that fact that purchasing behaviour in

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the airlines industry depends on the image of the firm. Image gets created when the company
provides satisfactory services to its existing customers. In the case of merger or acquisition,
there can be chances that people’s image about the frim does not change hence desired
benefit might not be achieved. With the help of strategic partnership they could learn the
ways in which the process can be changed and hence desired benefits could be achieved (Qiu,
2010). Most of the time bigger companies make a strategic alliance with smaller companies
to ensure that they achieve the control of the domestic or regional markets as well. This helps
the firs to make packages that include complete international and national places. People also
feel that they are getting services at one place and hence they also prefer such packages.
Strategic or cooperative partnership is beneficial for the companies as it costs less for the
organisation to have strategic alliance with other partners while in acquisition a lot of cost
gets involved and if desired results does not get achieved then the chances of business failure
increases. In cooperative alliance companies could exchange technologies with each other
that could benefit them in improving their standards of operations (Ramón-Rodríguez,
Moreno-Izquierdo and Perles-Ribes, 2011). It also helps in reducing their cost of operations
and hence the prices of their offerings also come down. This is beneficial for gaining
advantage in the modern day competitive market. Use of advanced technologies helps them
in reducing the carbon emission and hence they could their business goals under the given
time period. It also helps in increasing the fleet size without actually owning one. If case of
any emergency situation also they could support each other and hence greater customer
satisfaction can be achieved.
Main drivers that pushes firms into cross-border mergers
Due to the change in the external and internal environment in various parts of the world, there
is a considerable amount of change that can be noticed in the way aviation industry is
changing its mode of operations. Some of the major drivers that are pushing companies into
cross-border mergers are as follows:
Changing global economic situation: Due to globalisation, world has converted into a
global village. This has benefitted the firms in both ways i.e. positively and negatively. In
positive terms it has provided companies with opportunities to operate in many regions of the
world. This is one of the major reasons why companies are finding it beneficial to go into the
cross-border merger acquisition. In the time to come more people are going to travel through

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airplanes mediums when compared with recent scenario (Williams, 2017). In order to grab
this market companies are making more ties with the companies that are operating in other
parts of the world. In negative terms the world economy has been performing poorly in the
last decade or so and this has forced the companies to take decision such as merger in
different parts of the world so as stabilize its operations irrespective of its failure in any
specific region of the world. Cross border Merger helps them to establish themselves in the
cross border territories which are very much essential in the growth.
Learning Cultural variances: Since the cultural dimension in different parts of the world is
different hence cross-border mergers helps the firms to learn about the new cultures. This is
very much essential if any company plans to enter into the business without facing significant
challenges. Since in service industry culture plays a very important role hence the companies
need to learn cultural variances (Franke and John, 2011).
Changing Legal regulation: Legal regulations changes from country to country and these
regulations have to be followed by the companies so as to do effective business. With the
help of cross-border mergers companies can easily learn the legal aspects of that country and
the way in which doing business could be beneficial for the company. In many countries the
laws related to customer satisfaction is very strict hence in the process of expansion cross-
border merger could be beneficial. In many countries there is an obligation of investment i.e.
a foreign company cannot invest more than 49% in any venture hence they cannot acquire the
company in that country (Albers, et al. 2017).
Changing political scenarios: In all across the world new boundaries are made and the
international relation has taken a great deal of change when it is about new political ties. It is
seen that changes of political ties have great influence on the mobility of people. Ties also
have effect on the flight routes which is a major concern for the companies. With the help of
cross-border merger they could easily have the access to the flight routes in different parts of
the world (Min and Joo, 2016). This is not so much beneficial in the case of merger among
the companies from same country. This is because the number of routes that is available to
have flights from one country to another country remains the same. Cross border mergers
helps in increasing the numbers of direct flights operated by any company. With more such
mergers they could let them to easily fly to many parts of the world.
Apart from these factors there are various other reasons due to which companies prefer to
have cross-border alliance. Such mergers help in increasing the economies of scale as well as

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help in improving the capacity to purchase he synergies especially related to IT synergies. It
also helps in hiring talents from different parts of the world and hence transferring skills of
different types from one place to another (Bilotkach, 2011). It also improves maintenance
synergies, corporate planning synergies. One of the greatest benefits of cross-border mergers
is that it improves the brand name of the company in other parts of the world which has a
direct impact on the marketing campaign of the firm. It might be possible that both the
companies are facing financial challenges in their own countries and with the help of cross-
border merger they could help each other in terms of finance. There are people from different
segments of the society and they like to get treated in their cultural manner. Such mergers
help the company to improve their operational methodology. This type of mergers also helps
in increasing the scope of the company towards its market expansion (Tugores-García, 2012).
It will also help in optimising the network of the company in the coming years especially in
terms of the areas in which they deliver their services. It provides opportunity of new market
growth.
Jet-Etihad deal was a perfect example of how companies support each other in their
operational methods. Jet helped them in learning the ways to operate in the economically
weaker market and Etihad helps them in improving different aspects such as quality of the
services and how to optimise their services when fuel prices are increasing. Star Alliance,
Sky teams and one world are perfect example of such kind of merger. British Airways and
American Airways alliance helps them to improve each other’s sale across the Trans-Atlantic
region (Iatrou and Oretti, 2016). Otherwise they both would have been each other’s
competitors which were a loss to both the companies and in the amount of competition that
exist in the industry, it is crucial to be a part of the larger firms that has wider scope. This
saves a lot of money of the company on marketing and a joint marketing campaign could
promote their brand name in each other nations (Milmo, 2010). It also benefits the fund
managers of both the company as decisive and more appropriate investments could be made
where the chance of failure reduces. Pricing and innovation are the two areas on which both
the companies could help each other on the basis of the demands in their markets.
CONCLUSION
From the above based report, it can be concluded that Airlines industry across the globe are
facing many types of challenges. For facing these challenges companies are taking the help of
the strategies such as strategic alliances. This is more preferred in the Airlines Industry as it

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helps in managing each other performance with least amount of capital investment. This also
benefits company in managing legal compliances such as not more than 49% of investment
by the airlines company in other countries. It also helps to improve technology that might
help in controlling the environment related issues. Changing global economic situation,
Learning Cultural variances, Changing Legal regulation and changing political scenarios are
some of the major drivers why airlines companies these days are going for cross border
mergers.

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REFERENCES
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